Canadians fuelling M&A activity

by Donald Horne03 Dec 2015

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Canadians fuelling M&A activity

Nearly three quarters of Canadian executives have M&A plans for the next year (74%), compared to only 24% in October 2014, according to EY's latest Canadian Capital Confidence Barometer – the highest rate in the survey's history.

“Canada is bullish in its pursuit of acquisitions,” says Doug Jenkinson, Ernst & Young's Transaction Advisory Services Partner. “M&A outlook is also positive in the U.S., where 74% of companies are planning on making deals this year — the highest out of all countries surveyed. We're seeing a very healthy market overall.”

The spate of mergers and acquisitions continued last month, when Industrial Alliance Securities Inc. signed an agreement to acquire Ontario’s Burgeonvest Bick Corp. just last month.

Mario Frankovich, president and CEO of BBSL (which is owned by Burgeonvest Bick) said that he believes “the combination of our two organizations will best our clients and advisors.”

Canadian Pacific recently indicated it wants to merge with Norfolk Southern with the aim of creating a transcontinental railroad with a combined market value of about $47 billion – an offer that so far doesn’t have the U.S.-based railway biting.

According to the survey, Canadian eagerness for M&A is supported by a higher optimism about the domestic economy. In fact, 38% of respondents see the Canadian economy improving, compared to just 13% in April 2015. This optimism is reflected in the steady growth of deal pipelines, with almost 90% of Canadian respondents looking at more than one M&A opportunity at once. This is almost double from April 2015.

For Jenkinson, the rise in M&A activity shouldn’t be a concern for the market.

“Despite the high appetite to acquire, we have confidence this isn't an overheating market," says Jenkinson. "Executives told us they're being extremely prudent in evaluating opportunities – and 82% said they're willing to walk away from deals that aren't fully aligned with their corporate strategy. This is a sure sign of a strong, but thoughtful market."

The Canadian market is becoming the focus of Canadian M&A activity, as 66% of companies are investing in domestic deals in the coming year. Part of the explanation for this may lie in the tumultuous commodity markets, which have impacted the flow of capital. There are signs that the Canadian oil and gas industry will see an increase in transactions in the coming year as players address balance sheet pressure. Globally, 90% of oil and gas executives expect the M&A market to accelerate in the next 12 months — a sharp increase from 50% of respondents a year ago.

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The advisory industry is experiencing stable levels of profitability and continues to grow but at a rate slower than five years ago. This slowing will require changes in how firms are managed in order to build their bottom line